Question

Orange Ltd. is considering purchasing a new manufacturing plant that costs $500,000. The manufacturing plant will generate revenues of $150,000 per year for ten years. The operating costs needed to generate these revenues will total $75,000 per year. The manufacturing plant will be depreciated on a straight-line basis over ten years to zero. Orange Ltd.’s tax rate is 30 percent, and its cost of capital is 10 percent.

**(a)** What is the net present value of this
project?

**(b)** Should the company approve this project?
Explain why or why not. (Show all of your calculation).

Answer #1

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